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A Consent Theory of Unconscionability: an Empirical Study of Law in Action Larry A

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A Consent Theory of Unconscionability: an Empirical Study of Law in Action Larry A University of Florida Levin College of Law UF Law Scholarship Repository UF Law Faculty Publications Faculty Scholarship Summer 2006 A Consent Theory of Unconscionability: An Empirical Study of Law in Action Larry A. DiMatteo University of Florida Levin College of Law, [email protected] Bruce L. Rich Follow this and additional works at: http://scholarship.law.ufl.edu/facultypub Part of the Contracts Commons Recommended Citation Larry A. DiMatteo & Bruce Louis Rich, A Consent Theory of Unconscionability: An Empirical Study of Law in Action, 33 Fla. St. U. L. Rev. 1067 (2006), available at http://scholarship.law.ufl.edu/facultypub/524 This Article is brought to you for free and open access by the Faculty Scholarship at UF Law Scholarship Repository. It has been accepted for inclusion in UF Law Faculty Publications by an authorized administrator of UF Law Scholarship Repository. For more information, please contact [email protected]. A CONSENT THEORY OF UNCONSCIONABILITY: AN EMPIRICAL STUDY OF LAW IN ACTION LARRY A. DIMATTEO* & BRUCE LOUIS RICH** I. INTRODUCTION .................................................................................................. 1068 II. DOCTRINE OF UNCONSCIONABILITY: LAW IN THE BOOKS .................................. 1070 A. The Procedural-SubstantiveBifurcation ................................................... 1072 B. Developing a FactorsAnalysis ................................................................... 1075 1. ProceduralFactors ............................................................................... 1076 2. Substantive Factors............................................................................. 1079 III. UNCONSCIONABILITY SCHOLARSHIP: EMPEROR'S NEW CLAUSE AND BEYOND .... 1080 A. Defining the Undefinable ........................................................................... 1080 B. An Alternate Analytical Framework: The Circle of Assent ........................ 1088 C. Other Issues: Legal Representationand Reformation ............................... 1090 IV. M ETHODOLOGY AND FINDINGS .......................................................................... 1091 A . Selection of Cases ....................................................................................... 1092 B. Independent and Dependent Variables...................................................... 1093 C. FactorAssociation ...................................................................................... 1094 1. Group A Hypotheses ............................................................................. 1094 2. Group B Hypotheses ............................................................................. 1096 D. Findingsof Factor Association .................................................................. 1096 1. Group A Hypotheses: Results ............................................................... 1097 2. Group A Hypotheses: Conclusions ....................................................... 1100 3. Group B Hypotheses: Results ............................................................... 1100 4. Group B Hypotheses: Conclusions ....................................................... 1101 E. Results of Logistic Regression Analysis ..................................................... 1102 1. Logistic Regression .............................................................................. 1103 2. Logistic Regression Results .................................................................. 1105 V. A THEORY OF CONSENT APPROACH TO UNCONSCIONABILITY ............................ 1107 A . Consent Theory ...........................................................................................1107 B. A Consent Theory of Unconscionability ..................................................... 1110 VI. C ONCLUSION ..................................................................................................... 1115 "There seems to me to be some possibility that these provisions may lead appellate courts into a machinery for striking down where striking down is needed . ,1 Karl N. Llewellyn * Huber Hurst Professor of Contract Law & Legal Studies, Chair, Department of Management, Warrington College of Business Administration, University of Florida; J.D., Cornell University; LL.M., Harvard Law School. ** Doctoral Candidate, Department of Management, Warrington College of Business Administration, University of Florida; J.D., Louisiana State University; LL.M., University of Miami; M.B.A., University of Florida. 1. KARL N. LLEWELLYN, THE COMMON LAW TRADITION: DECIDING APPEALS 369 (1960). An alternative quote considered: "[I]t is essential that we address the problem which we caricature as the contract between the rabbits and foxes, in which the foxes im- pose the clause that all disputes will be resolved by a panel of foxes, or by a panel of wolves." Bd. of Ed. of Berkeley County v. W. Harley Miller, Inc., 236 S.E.2d 439, 447 (W. Va. 1977). 1068 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 33:1067 I. INTRODUCTION Karl Llewellyn 2 saw section 2-302, the doctrine of unconscionabil- ity, as providing a mandate for courts to police contracts.3 He did not see it as providing the machinery for accomplishing or guiding this grant of judical power. 4 The doctrine of unconscionability and the best "machinery" for its implementation has been the source of schol- arly discussion ever since. 5 This Article attempts to provide empirical evidence, through the statistical analysis of cases, of how courts have applied this mandate and whether a discrete machinery has been de- veloped in its implementation. Ultimately, the Article assesses whether a coherent machinery or analytical framework has been fab- 6 ricated through forty years of jurisprudence. 2. Karl Nickerson Llewellyn was the Chief Reporter for the Uniform Commercial Code (U.C.C.) and the principal drafter of Articles I (General Provisions) and II (Sales). He is also famous for his works in commercial and contract law, jurisprudence, legal educa- tion, sociology and law, and anthropology and law. Llewellyn is most famous for his part in the U.C.C. project and as a principal of the Legal Realist Movement of the 1930s. 3. For a brief history of the U.C.C. project, see William A. Schnader, A Short History of the Preparationand Enactment of the Uniform Commercial Code, 22 U. MIAMI L. REV. 1 (1967). For a history of unconscionability as it pertains to the U.C.C. and its subsequent development in California, see Harry G. Prince, Unconscionability in California:A Need for Restraint and Certainty,46 HASTINGS L.J. 459 (1995). 4. Professor Murray expressed this view in his 1969 article: "Llewellyn completely understood... that the statute is nothing more than a catalyst for the development of the analytical structure of unconscionability." John E. Murray, Jr., Unconscionability: Uncon- scionability,31 U. PITT.L. REV. 1, 38 (1969). 5. A Lexis search of the word "unconscionability," limited to the most recent two years of legal literature, yielded 504 entries (search performed on Mar. 10, 2005). 6. In 1970, Robert Braucher, the principal author of section 2-302, stated that "we are probably not much more ready now than we were twenty years ago to arrive at com- phrensive reasoned elaboration of what is unconscionable." Robert Braucher, The Uncon- scionable Contract or Term, 31 U. PITT. L. REV. 337, 347 (1970). A more recent article notes that "the judiciary has not been able to clearly delineate comprehensive rules." Paul Ben- nett Marrow, The Unconscionabilityof a Liquidated Damage Clause: A PracticalApplica- tion of Behavioral Decision Theory, 22 PACE L. REV. 27, 29 (2001). Some commentators have argued that the failure of the courts to fabricate a coherent analytical framework suggests that some form of further legislative or regulatory intervention through the use of mandatory terms is needed. See, e.g., Russell Korobkin, Bounded Rationality, Standard Form Contracts, and Unconscionability,70 U. CHI. L. REV. 1203 (2003). Professor Korobkin concludes that behavioral economics suggests that the best technique for policing the mar- ket place for one-sided or unconscionable terms is a combination of legislative-mandated regulation through the use of mandatory terms and judicial oversight through the doctrine of unconscionability on a case-by-case basis: When the costs and benefits of particular terms are substantially similar across the range of contractual contexts in which the term will appear, legislatures and/or agencies mandating terms ex ante have a competitive advantage over courts; when costs and benefits are highly context specific, the advantage is re- versed. In the latter circumstance, a judicial review process based upon a modi- fied application of the unconscionability doctrine can improve upon the status quo and can be accomplished legitimately within the legislated boundaries of that doctrine. 2006] CONSENT THEORY OF UNCONSCIONABILITY 1069 This Article provides the findings of an empirical study of 187 court cases (case coding project) in which the issue of the unconscion- ability of a contract or a contract term was addressed by the courts. The cases were drawn from two time periods. The first set of cases can be viewed as the first generation of Uniform Commercial Code (U.C.C.)-style 7 unconscionability cases from 1968-1980.2 The second generation of unconscionability cases were from the time period of 1991-2003. The two groups of cases allow us to not only analyze a se- ries of questions and factors, but also to make intergenerational
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